Hewlett Packard Pty Ltd v Subasic

[2021] ACTCA 3

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

COURT OF APPEAL

Case Title: 

Hewlett Packard Pty Ltd v Subasic

Citation: 

[2021] ACTCA 3

Hearing Dates: 

9 and 10 November 2020

Decision Date: 

19 February 2021

Before: 

Murrell CJ, Elkaim J and Charlesworth J

Decision: 

See [106]

Catchwords: 

APPEAL – CONTRACT – alleged underpayment of sales commission – whether employee entitled to claimed commission under a sales incentive program – employer having discretion to cancel program – whether terms of the sales incentive program binding in contract whilst the program remained on foot –

whether payment of commission under the program subject to

approval by the employer – whether implied term of good faith applied to approval – whether employer entitled to retrospectively “cap” incentive payments – whether “least

burdensome principle” applied to assessment of award – appeal

dismissed

APPEAL – CROSS-APPEAL – pre-judgment interest – whether

discretion to award interest from date of commencement of

proceedings rather than from an earlier date miscarried – relevance of delay in exercise of the discretion – cross-appeal

dismissed

Cases Cited: 

House v R (1936) 55 CLR 499
Kalls Enterprises Pty Ltd (in liq) v Baloglow (No 3) [2007]
NSWCA 298

Maredelanto Compania Naviera S.A. v Bergbau-Handel GmbH

[1971] 1 QB 164
Stelmag Pty Ltd v Long Paddock Pty Ltd & Ors [2005] ACTSC
59
Subasic v Hewlett-Packard Australia Pty Ltd [2020] ACTSC 2

Hewlett-Packard Australia Pty Ltd (ACN 004 394 763)

Parties: 

(Appellant)

Melinda Subasic (Respondent)

Representation: 

Counsel

J Fernon SC with J Larkings (Appellant)

I Taylor SC with D Snyder (Respondent)

Solicitors

Baker & McKenzie (Appellant)
Just Dispute Resolution (Respondent)

File Number: 

ACTCA 8 of 2020

Decision under appeal: 

Court/Tribunal:	Supreme Court of the ACT
Before:	McWilliam AJ
Date of Decision:	30 January 2020
Case Title:	Subasic v Hewlett-Packard Australia Pty Ltd
Citation:	[2020] ACTSC 2

THE COURT: 

1.       The appellant, Hewlett-Packard Australia Pty Ltd (HP), operates an information and communication technology business. The respondent, Melinda Subasic, was employed by HP as a sales representative between May 2005 and November 2013.

2.       Three years after she left her employment, Ms Subasic commenced a claim against HP alleging that she had been underpaid $309,750.39 in commissions she alleged she had earned under a sales program. The claim related to a six-month period between 1 November 2009 and 30 April 2010 (the measure period). Ms Subasic exceeded her sales quotas in the measure period to such an extent that she was 500 per cent over budget.

3.       The primary judge concluded that the provisions defining the sales program were enforceable in contract and that HP was in breach of its terms, so giving rise to a debt. Judgment was entered for Ms Subasic in the whole of the claimed amount, plus interest calculated from the date that the proceedings were commenced: Subasic v Hewlett-Packard Australia Pty Ltd [2020] ACTSC 2.

4.       HP appeals from the judgment and orders, both as to liability and as to damages.

5.       Ms Subasic cross-appeals from the order awarding interest. She submits that interest

ought to have been calculated from the date of HP’s breach.

6.       In the result, both the appeal and the cross-appeal are to be dismissed.

7.       It is convenient to begin with a narrative of the unchallenged facts.

Background

8.       Ms Subasic was offered employment with HP by way of a letter of offer dated 29 April

2005 (Offer Letter). It states that Ms Subasic would be employed in the role of “End-
User Sales Representative”. It refers to two components of earnings as follows:

Total Remuneration

You will be paid a Total Remuneration (‘TR’) amount of $130,000 pa as set out in the

attached TR Advice.

Your TR amount includes, the payments and benefits set out in HP’s General Terms and

Conditions of Employment, but does not include any applicable profit share, employee share plan and other benefits.

…

Target Incentive Amount

You are also invited to participate in our Base Plus Earnings Program that includes a Target

Incentive Amount (‘TIA’) of $57,000 per annum in addition to your base pay. The Program and the TIA are subject to change or cancellation at Hewlett-Packard’s discretion and are

aligned to market data research conducted from time to time by HP.

1. The “TR advice” was contained in a table forming a part of the Offer Letter. It is

   extracted at [27] below.

10.     The payments made to Ms Subasic under the sales program were assessed under a

formula which changed from time to time. The “Target Incentive Amount” (TIA) was

one of a number of metrics within that formula. Other metrics included sales targets for different product types expressed in dollar figures (known as quotas), a weighting ascribed to different types of products sold (expressed as a percentage), and a payout figure (also expressed as a percentage). The payout figure included an accelerator, such that the greater the sales, the greater the multiple of TIA that may (in the ordinary course) be paid.

11.     The Offer Letter stated that acceptance of the offer of employment would constitute

acceptance of (relevantly) the terms contained in an attached document titled “General Terms and Conditions”. For present purposes, the terms contained in that document

and the content of the Offer Letter may be referred to collectively as the Employment
Agreement.

12.     Also attached to the Offer Letter was an overview of HP’s policies and procedures.

That document does not form a part of the Employment Agreement. It is nonetheless relevant, as explained elsewhere in these reasons.

13.     There was no express reference to the sales program in the General Terms and

Conditions, nor in the overview of HP’s policies and procedures. The terms of the

sales program were not known to Ms Subasic at the time that she accepted the offer of
employment.

14.     Ms Subasic signed the Offer Letter on 2 May 2005. She commenced her employment two weeks later and accepted the invitation to participate in the sales program. Thereafter, she received payments under the program, both before and after the events giving rise to this appeal.

15.     In her evidence at trial, Ms Subasic accepted that payments under the sales program

were “at risk” in the sense that if she did not achieve her sales quotas she may receive

no incentive payment at all, or may receive a sum that was less than her TIA amount.

The payment was also “at risk” in the sense that the sales program was subject to change or cancellation at HP’s discretion. Given those possibilities Ms Subasic did not

claim that the TIA was a fixed amount to which she was legally entitled. Rather, she alleged that the terms providing for the calculation and review of incentive payments had contractual force for so long as HP maintained the program in its discretion, and that she was entitled to payments calculated in accordance with those terms (including discretionary terms).

16.     Under the salary structure offered in 2005 Ms Subasic’s so-called “on target earnings”

totalled $187,000.00, with a 70:30 ratio of base salary and incentive payments respectively. The on target earnings ratio changed to 60:40 in 2007. That was done

by reducing Ms Subasic’s base salary to $112,200.00 and increasing her TIA to

$74,800.00, pursuant to what was pleaded as a variation to the Employment
Agreement.

17.     In the measure period, Ms Subasic achieved a level of sales which in the ordinary course would have resulted in her receiving an incentive payment of $446,250.39. Instead, she was paid $136,500.00, being an amount equivalent to 350 per cent of her measure period TIA.

1. HP’s decision to pay the lesser amount was made upon a review, conducted after the

   measure period had expired. On the review, Ms Subasic’s sales target was not

   altered, nor were any other metrics in the formula changed. Ms Subasic claimed that

   HP breached the employment contract by retrospectively “capping” the amount payable

   to her in respect of the measure period in a manner that was not authorised by the contract. In short, she argued HP did not have a discretion to cap the amount payable to her at all, or in any event could not do so with retrospective effect after the measure period had expired. Alternatively, she argued that if HP did have a discretion to retrospectively cap the payment, it had done so in breach of an implied term requiring that the discretion be exercised in good faith.

19.     At trial, HP’s primary case was that the program that provided for the payment of

incentive payments did not have contractual force. Alternatively, HP denied that it had breached the express terms of the contract, denied the existence of the implied term and denied that it had breached the implied term in any event. HP further argued that no debt had arisen because, on the proper construction of the terms of the sales

program, Ms Subasic’s entitlement to receive any more than 250 per cent of her TIA

was subject to HP first approving the payment after a review. If its decision to withhold approval was invalid, it would remain that there was no approval for any payment in the claimed sum. Accordingly, it was argued, Ms Subasic was limited to a claim in damages reflecting the loss suffered as a consequence of the approval being withheld. On that analysis, HP argued, Ms Subasic had not suffered loss because, in the

application of the “least burdensome principle” explained in Maredelanto Compania

Naviera S.A. v Bergbau-Handel GmbH [1971] 1 QB 164, HP could have (and would have) withheld its approval in a manner that accorded with the terms of the contract in any event.

Questions arising on the appeal

20.     There are multiple grounds of appeal. Collectively, they are to the effect that the

primary judge erred by rejecting HP’s arguments at first instance, as now re-agitated on

this appeal.

21.     In its written submissions, HP articulates five issues to be determined, as follows:

(a)	Whether Ms Subasic was entitled to the claimed incentive payment pursuant to the express terms of the Employment Agreement in addition to her base salary;
(b)	Whether payment of the claimed incentive was subject to the approval of HP;
(c)	Whether an implied term of good faith applied to that approval;
(d)	Whether HP was in breach of the implied term; and
(e)	If HP was in breach of the implied term, whether the “least burdensome principle” applied to the assessment of the amount awarded to Ms Subasic

and, if so, whether the primary judge erred in the application of the principle.

22.     The first issue identified by HP tends to conflate two critical questions.

23.     It must first be determined whether the provisions providing for the assessment and payment of the incentive were binding in contract. If the terms of the sales program were binding in contract, it must then be determined whether those terms operated on the facts in a way that gave rise to an entitlement in Ms Subasic to be paid the claimed sum.

24.     The second and third issues encompass some (but not all) of the parties’ contentions concerning the limits on the exercise of HP’s discretions. It poses the question as to whether the discretion to “approve” a payment was subject to an implied limitation

(being an obligation to act in good faith). However, before turning to the implication of

terms, it is first necessary to ask whether HP’s discretions were conditioned in other

ways as a matter of construction of the express terms.

25.     It is convenient to dispose of the grounds of appeal (and hence the issues identified by HP) by reference to four questions:

(a)	Were the terms of the sales program enforceable in contract?
(b)	If so, how should the relevant terms be construed?
(c)	On the facts, did HP breach those terms?
(d)	If so, did the breach give rise to an entitlement to damages in the claimed amount?

Was the sales program binding in contract?

26.     As the Offer Letter stated, the sales program was subject to “change or cancellation” at HP’s discretion. However, HP did not argue that the existence of a discretion to cancel

the program, of itself, deprived the program of contractual force. Rather, it was submitted that the parties had mutually and expressly agreed that the terms defining the sales program were not intended to be binding on HP in contract. That submission was said to find support in the following materials.

27.     The “TR advice” attached to the Offer Letter consisted of a table and accompanying

notes. The table was expressed as follows:

HEWLETT-PACKARD AUSTRALIA PTY LTD

TR ADVICE

SALARY COMPONENTS

Effective Date	23rd May 2005
Salary Range	S06
Taxable Base Salary	$114,550.06
Superannuation – Company Contributions	$15,449.94
TOTAL REMUNERATION	$130,000
TARGET INCENTIVE AMOUNT (TIA)	$57,000
SALES NOTIONAL SALARY (91.8% of [TR	$171,666
plus TIA])

1. The “advice notes” accompanying that table included the following statements:

   2.         TOTAL REMUNERATION

   This is the salary figure used for salary administration purposes. It is the salary figure including Taxable Base Salary, Employee salary sacrifice superannuation contributions (if exercised), company superannuation contributions, and all salary package vehicle deductions (if applicable). Total Remuneration excludes: profit share, employee share plan and other benefits.

   …

   5.         NOTIONAL SALARY

   The Notional Salary figure is used in the calculation of some employee salary components,

   for example Superannuation. This Notional Salary is calculated by taking the employee’s TR

   amount and multiplying it by 91.8%.

29.     Consistent with the words of the Offer Letter, the final row of the TR advice separately

identified two components of a “sales notional salary”, namely the “Total
Remuneration” (TR) and the TIA.

30.     Next, HP relies upon clauses 3 and 7 of the “GENERAL TERMS & CONDITIONS OF EMPLOYMENT”. They provide:

3.         REMUNERATION

Your Total Remuneration has been set at a competitive market rate and as such includes all payments and benefits HP is legally obliged to make to you, to make on your behalf or make in relation to any amount or benefit provided to you (including overtime, loadings, allowances, superannuation as prescribed by law and Fringe Benefits Tax).

Any new payment or benefits to which you become legally entitled (under any legislation, award or certified agreement) will be absorbed into your Total Remuneration unless HP specifies otherwise.

…

7.         POLICIES

HP has a number of policies, procedures, practices and benefits which apply to its employees.

You agree to abide by any policies, procedures, practices and the criteria that govern any

benefits that HP implements, as varied from time to time by HP at HP’s discretion. To the

extent that the contents of policies, procedures, practices or benefits refer to obligations on HP, you agree that they are guides only and are not contractual terms, conditions or representations on which you rely.

HP will keep you informed of any changes to its policies, procedures, practices and benefits via the @ HP Portal. Please ensure that you check the Portal regularly to maintain current knowledge and understanding of policies.

31.    Next, HP relied on a document titled “HP Global Sales Compensation Policy”

(GSC Policy), expressed to have taken effect from 1 November 2009. Its stated

purpose is to “describe the standard treatment of sales credit and incentive pay

administration”. Clause 3 of the GSC Policy is titled “Sales Letters”. It relevantly states

that an employee’s Sales Plan is to be defined in Sales Letters issued to the employee

as early as possible in a measure period. The GSC Policy contains the following
opening statement:

• None of the contents in this policy, HP Sales Plans, nor regional sales compensation guidelines shall be construed to imply the creation or existence of a contract between HP and any participant, nor a guarantee of employment for any specified period of time.

• No Sales Plan participant will have any right to monies accrued through the plan until and unless all terms, provisions and conditions, as set forth in this policy, the assigned Sales Plan and sales crediting process and procedures have been met.

• HP reserves the right to adjust Sales Plans as necessary to address changing business conditions or correct administrative error.

• HP reserves the right to change or discontinue this policy, with or without notice, at any time.

32.     Next, HP relied on a series of Sales Letters issued to Ms Subasic pursuant to the GSC Policy. The Sales Letter applicable to the measure period will be referred to as the 09 Sales Letter. Its stated purpose was to:

… communicate your Sales Plan, the business objectives and the parameters on which your

incentive compensation will be based.

33.     The 09 Sales Letter went on to say that the Sales Plan was “governed by” a number of

policies, including the GSC Policy.

34.    HP submitted that the GSC Policy was a “policy” or a “benefit” and so had no

contractual force because clause 7 of the General Terms and Conditions expressly evinced an intention that HP not be bound by policies, procedures, practices and benefits. Moreover, it was submitted that clause 3 of the General Terms and Conditions was an exhaustive statement of the money to which Ms Subasic was legally entitled under the employment contract. It was submitted that the extent of her

entitlement was the “Total Remuneration” and that, conversely, any payment not falling

within the Total Remuneration (as identified in the TR advice) was a payment HP was
not legally obliged to make.

Reasons of the primary judge

35.     The primary judge said that Ms Subasic’s TIA had been included “as a specific clause” in the Offer Letter and that it was “clearly a key part of the employee’s earnings, even

though it was tied to performance” (at [61]). As to clause 3 of the General Terms and

Conditions, her Honour said (at [66]):

I also reject the Employer’s submission that because the TIA was separate to what was described as the ‘total remuneration’ figure (being the fixed component), the $57,000 sum

was not part of the Employer’s original contractual obligations … As submitted by

Ms Subasic, the words about what the Employer was ‘legally obliged’ to pay were clearly for

the purpose of expressly excluding benefits which might otherwise have arisen under entitlements that might be found outside the Letter of Offer, such as an industrial award, certified agreement or statute. That much is clear from the reference to items such as

overtime, loadings and allowances. There is no express exclusion of the ‘legal obligation’ to pay an incentive payment properly earned in accordance with the employee’s participation in

the Employer's Program or successor program.

36.     The primary judge said that that construction was supported by the language of the 09 Sales Letter which, her Honour said, showed that that terms contained in it were

“solemnly set” (at [70]). The notion that the 09 Sales Letter was only a guide was

“emphatically contradicted” by the words contained in the document and other documents accompanying it (at [71]). The primary judge also referred to HP’s post

contractual conduct as follows (at [73]):

However, even if the parameters may have been a ‘guide’, they were the parameters given

by the Employer and the Employer paid Ms Subasic according to them. In that way, the Employer so conducted itself as to be bound by the criteria it had set. There were no other parameters for calculating the incentive payment. Further, in my view, the Employer did not change the parameters given to Ms Subasic in the Sales Letter. Rather, the Employer purported to introduce a cap once it was made aware of Ms Subasic's exceptionally strong sales performance. Even the cap was assessed by reference to the parameters in the Sales Letter.

Consideration

37.     It is convenient to begin with clause 7 of the General Terms and Conditions. That clause makes it plain that the policies to which it applies do not have contractual force in and of themselves. It is therefore necessary to determine whether the document

titled “GSC Policy” is a policy to which clause 7 can and does apply.

38.     Read in the context of the Employment Agreement as a whole, clause 7 cannot be construed so as to deprive an employee of a payment to which the employee is entitled under the remaining terms, construed as a whole and understood in their proper commercial context. Expressed another way, if there is a salary component to which the employee is contractually entitled, then clause 7 could not operate to deprive the employee of that entitlement merely because the method for calculating the amount of

the entitlement is contained in a document unilaterally styed by HP as a “policy”.

39.     In the present case, the GSC Policy was not in existence at the time that Ms Subasic

accepted her offer of employment with HP. Its characterisation as a “policy” was not

agreed by her. The circumstance that HP later wrote and styled a document defining

the sales program as a “policy” does not evidence a meeting of the minds that it was a

policy to which clause 7 applied at the time that the contract of employment was formed. Nor does it evidence an intention by the parties not to be legally bound by the terms of any sales program that was in existence from time to time and that otherwise had contractual force.

40.     That conclusion is reinforced by the following statements contained in the Offer Letter:

Other Terms and Conditions

The attached documents set out:

• HP’s General Terms and Conditions of Employment;

• HP’s Agreement Regarding Confidential Information and Proprietary Developments;

and

• an Overview of HP’s Policies.

The General Terms and Conditions of Employment and the Agreement Regarding

Confidential Information and Proprietary Developments form part of this employment offer.

…

Acceptance of Employment Offer

Acceptance of this employment offer will be taken as acknowledgement and acceptance of the provisions contained in this letter, the General Terms and Conditions of Employment, and the Agreement Regarding Confidential Information and Proprietary Developments.

41.     It is plain from those extracts that the “Overview of HP’s Policies” does not form a part

of the employment contract. Among other things, it refers to benefits such as flexible salary packaging, use of company vehicles and share ownership. It also refers to matters such as work/life balance, health and safety and choice of superannuation plan. The document makes no reference to the calculation and payment of either one

of the two salary components referred to in the TR advice. Ms Subasic’s agreement to

clause 7 of the General Terms and Conditions cannot be understood as including an acceptance of the proposition that HP was not contractually bound to comply with the terms of any sales program that remained in existence from time to time (whether those terms conferred discretions or not).

42.     Nor do we consider clause 3 to operate in the manner contended for. Construed in context, clause 3 should be understood as containing a statement as to what amounts are taken by the parties to be included in the total remuneration component of

Ms Subasic’s salary. It may properly be understood as ensuring that the total

remuneration figure encompassed all amounts to which Ms Subasic was presently entitled at general law and amounts to which she may in the future become entitled under general law to receive, were it not for the clause. That construction is reinforced by the examples given in the clause itself, including overtime, loadings, allowances, superannuation as prescribed by law and Fringe Benefits Tax. The new payments are

those arising “under any legislation, award or certified agreement”. The circumstance

that Ms Subasic might otherwise have been legally entitled to benefits under the general law does not support an inference that the parties did not intend the terms of the sales program to be legally binding on the parties to the agreement. Clause 3 does not deal with the subject matter of the sales program, nor does it represent an

exhaustive statement of the whole of Ms Subasic’s contractual entitlements.

43.     In any event, it does not defeat Ms Subasic’s argument to say that she had no “legal entitlement” to incentive payments. As has been said, Ms Subasic’s case was that she

was entitled to have the sales program implemented in accordance with its terms in which event a payment may or may not be owing, depending upon her performance. That aspect of her claim was properly upheld by the primary judge.

44.     In our view, the analysis of whether HP was contractually bound to comply with the terms of the sales program begins and ends with the Offer Letter and the General Terms and Conditions of Employment. As HP properly acknowledged, it cannot succeed on this aspect of the appeal unless clauses 3 and 7 were construed in the manner for which it contended. If that construction is rejected (as it must be), then it follows that HP was contractually bound to observe the terms of any sales program in existence from time to time and in which Ms Subasic participated. To the extent that

the GSC Policy in 2009 contained statements purporting to deny HP’s liability in

contract, those words cannot govern or alter the contractual relations created by the Employment Agreement, properly construed. To that extent we respectfully disagree with the approach of the primary judge and the emphasis her Honour placed on the words contained in the 09 Sales Letter or the GSC Policy or any other document other than those constituting the Employment Agreement. Her Honour was nonetheless correct to conclude that HP was contractually bound to observe the terms of the sales program for so long as the sales program remained in existence. Whether performance of that obligation would result in an obligation to make any payment to Ms Subasic is a different question.

HP’s contractual obligations

1. As to the content of HP’s obligations, there are two questions to consider. The first is

   whether the employment contract limited the method by which the amount of an incentive payment may be calculated or recalculated in the conduct of a review. The second is whether it would be permissible for HP to make changes to a Sales Plan having retrospective effect so as to apply to a measure period or a part of a measure period that has occurred in the past.

Capping

46.    The terms of the sales program are to be found in the GSC Policy (and other documents referenced in it) and the 09 Sales Letter. The highly prescriptive

documents form a part of what was aptly described in submissions as “the elaborate
machinery” by which incentive payments were to be calculated and paid.

47.     The GSC Policy contains statements confirming its purpose as a document that applies

across HP’s business worldwide that is intended to ensure consistency of payments to

sales employees in the business. It states that “all new Sales Plans or plan modifications must be in compliance with the current SC framework”. That framework

is contained in a separate document. It sets out the parameters for the creation of a

Sales Plan. It refers to a “Pay Mix” of 60/40. That is consistent with change in

Ms Subasic’s employment conditions in 2007 by which her base pay was reduced and her TIA increased. Under the heading “Caps” the framework relevantly states:

There is no incentive earning maximum a sales employee can be paid for a performance period.

48.     The GSC Policy includes the following:

• Sales Letters will be issued to all sales employees as early as possible in the measure period;

• A Sales Letter may also be provided to a sales employee mid-measure period if Sales Plan changes occur;

• A sales employee’s TIA may be changed mid-measure period, effective on the first of

a month;

• Quota adjustments may be implemented during a measure period;

• Quota adjustments require approvals per the HP Global Sales Compensation Delegation of Authority Policy and are controlled by region quota adjustment processes.

49.     Clause 10 of the GSC Policy is titled “Management Incentive Performance Review (MIPR)”. It relevantly states:

HP has implemented a management review policy to evaluate sales performance

significantly above target or for evaluation of credit for ‘large’ deals. … When a sales

employee reaches an identified performance threshold, a management review occurs. As a result of these reviews, management may adjust various components of the

employee’s Sales Plan, may hold incentive payments until review is complete or may

recover unapproved payments to ensure fair measurement of performance. For plans
with discretionary metrics, MIPR can only make adjustments to the formulaic portion.

Review of individual performance/sales credits by Sales Compensation Operations (SCO) is considered external and a pre-requisite to management approval. This ensures that management only reviews data that has been validated (based on current information available to SCO) as complete and accurate from operational and system perspectives.

The region and country business group sales management organizations are

responsible for conducting reviews and providing approvals, once an employee’s

attainment reaches 250% TIA attainment (inclusive of any discretionary metrics) and

at each additional 100% incremental TIA attainment. Additional reviews and approvals

may be added as deemed appropriate by Country or Region management.

(Emphasis added)

50.     There is a further document governing the conduct of MIPRs (the MIPR document). It

confirms that the purpose of a MIPR is to “evaluate sales performance significantly above target or for evaluation of credit for ‘large’ deals”. It contains statements to the

same or similar effect as those emphasised above. Further statements to similar effect were contained in the 09 Sales Letter issued to Ms Subasic in respect of the measure period.

51.     At the relevant time, the components of Ms Subasic’s Sales Plan included the following

formula, together with a calculation example:

Incentive Earnings Calculation Example: Linear slope ˂100% and below 100% WPA

performance

SALES PLAN:  CALCULATION:

Weighted Performance 90% (Performance x Slope or Acceleration

Attainment (WPA):  Rate) x TIA = Incentive Earned:

Slopes:  0-100%: 1

(90% x 1) = 90% x $15,000 = $13,500

Acceleration Rates:  ˃100%: 2.5

Total Incentive Earnings: $13,500

Measured Period TIA:  $15,000

1. The “Weighted Performance Attainment” (WPA) is a percentage figure derived from

   weighted sales quotas set out in the Sales Letter. In the case of Ms Subasic, there were three product lines weighted at 50 per cent, 25 per cent and 25 per cent, so as to incentivise sales of product lines with the greater weighting.

53.     The formula then operated on the achieved sales in a way that accelerated the rate of incentive once an employee achieved more than 100 per cent of his or her sales quota.

In Ms Subasic’s case (and subject to permissible change upon a review) the “Acceleration rate” otherwise known as the “payout figure” operated in the measure

period as follows:

• By the end of January 2010, Ms Subasic had achieved about 225 per cent of her

sales quota, which would result in an incentive payment of 414 per cent of her TIA.

• By the end of February 2010, Ms Subasic had achieved about 295 per cent of her

sales quota, which would result in an incentive payment of 588 per cent of her TIA.

• By the end of the measure period, Ms Subasic had achieved about 517 per cent of

her sales quota, which would result in an incentive payment of 1144 per cent of her
TIA.

54.     On the proper construction of the documents defining the sales program, the “WPA”, “slopes” and “acceleration rates” may each be regarded as metrics that the reviewer

had the discretion to adjust in the conduct of a review. If that conclusion be wrong, then the WPA figure alone is a metric that may be altered by, for example, increasing sales quotas or reducing weightings to be attributed to particular sales (each of which would render achievement of the target budget more difficult).

55.     In the course of determining whether the sales program had contractual force, the primary judge said:

75       That there was a discretionary element to the existence of the Program or its amendment in the Letter of Offer does not negate the contractual obligation to pay an employee who participated in the Program, or its successor, according to whatever terms were set by the Employer. I consider it appropriate to applying [sic] similar reasoning to that set out in Silverbrook above, in that the discretion to change or

amend the Program or the TIA was to be exercised ‘honestly and conformably with the
purposes of the contract’.

76.      Clear words would have been necessary before that clause in the Employment Agreement could be construed as allowing the Employer to introduce a cap and thereby refuse to pay an employee what it had promised to pay if the employee satisfied the criteria for performance set by the Employer in a policy. This is because to construe that clause as permitting such conduct would be to read the discretion referred to in the Employment Agreement as essentially unfettered.

(Emphasis added)

56.     Her Honour continued (at [79]):

… a reasonable construction of the Employment Agreement was that the Employer was not

permitted to decide arbitrarily, capriciously or unreasonably that it need not pay an incentive payment where the set objectives had been satisfied. To my mind, that is the proper construction of the express words of the Employment Agreement.

1. And, at [81], under the heading “The implied term of good faith”, her Honour said:

   If I am wrong as to that construction, I would have found that there was an implied term of good faith in the exercise of the discretion with regard to the incentive payment under the Program as amended, the content of which (ascertained by reference to the terms of the Employment Agreement) was that the Employer could not decide arbitrarily, capriciously or unreasonably that it need not pay an incentive payment where the set objectives had been satisfied. It arises to give business or commercial efficacy to the particular clause of the contract. It would defeat the commercial purpose of the clause if it were construed as permitting the Employer to introduce an incentive program, expressly remove a cap on incentive payments, market the program as rewarding strong performance, and then when employees performed strongly, exercise its discretion to refuse to pay the incentive specified.

58. With respect to the primary judge, the reasoning at [79] (extracted at [56] above) is

somewhat circular. Identifying the amount that HP had “promised to pay” must depend

upon the provisions of the Employment Agreement (and, more particularly, the
documents defining the sales program), construed as a whole.

59.     The evidence at trial plainly showed that HP had not purported to withhold the claimed amount in the exercise of any asserted free standing contractual discretion to withhold

payments per se. Rather, HP’s pleaded case was that the calculation of the incentive payment was subject to the proper performance of HP’s contractual powers of review

in accordance with the policies summarised above. HP pleaded that Ms Subasic had reached the performance threshold under the MIPR in January 2010 which automatically triggered a review, and that any incentive payment to Ms Subasic above that amount was not payable unless and until it was approved on review.

60.     HP pleaded that when Ms Subasic subsequently attained 250 per cent of her TIA for

the measure period, the decision-maker conducting the review “did not approve any

further incentive payment above 350 per cent of TIA and thereby capped any further

incentive payments” to Ms Subasic. HP is bound by its pleaded case that the payment

was capped in that way.

61.     The relevant contractual obligation is the obligation to conduct the review in the manner specified in the GSC Policy and its referenced documents described above. That

obligation was triggered when Ms Subasic’s performance equated to a payment of 250

per cent of her TIA. And it was triggered again at each additional 100 per cent
increment.

62.     The primary judge held that there were three things HP was permitted to do upon or as a result of the review: adjust various components of the Sales Plan, hold incentive payments until the review was complete and recover unapproved payments to ensure fair measure of performance.

63.     On their proper construction, the provisions defining the review process permitted HP

to “adjust various components” of Ms Subasic’s Sales Plan. Where the components of

the Sales Plan are dealt with, the permissible changes are subject to express

limitations. For example, to the extent that the Sales Plan included “discretionary metrics”, the reviewer was permitted to only “make adjustments to the formulaic

portion”. As mentioned earlier, any changes to a Sales Plan were also required to

conform with the “SC Framework”, which stated that there was no generally applicable

cap on the maximum incentive (as there had been prior to 2007). The documents also contain temporal terms concerning the periods to which changes might apply, as discussed below.

64.     The review provisions did not expressly confer upon the reviewer a general discretion to adjust the incentive payment as the reviewer thinks fit. Nor do the formulae contained in the Sales Plan indicate how any factor in the formula could be adjusted so

as to impose a cap expressed as a multiple of the employee’s TIA. The detailed and

prescriptive terms of the documents governing and limiting the review tell against the implication of such a power. That conclusion is reinforced by reference to the purpose of the varied terms of the sales program introduced in 2007 at the time when

Ms Subasic’s base pay was reduced. A letter dated 2 October 2007 contains the following table confirming Ms Subasic’s altered mix of base salary and commission

immediately following the changes in 2007:

HEWLETT-PACKARD AUSTRALIA LTD

TOTAL REMUNERATION STATEMENT

Employee Number:	20145418	Effective Date:	01-11-2007
Employee Name:	Subasic, Melinda	Grade:	U09
Supervisor:	Robson, Andrew
FROM	TO

TOTAL REMUNERATION COMPONENTS

Company Super. Accum. SA01	$ 15,449.94	$ 15,449.94
Base Salary	$114,550.59	$ 96, 750.06
TOTAL REMUNERATION	$130,000.53	$112,200.00
Target Incentive Amount (HPMIX)	$ 56,999.47	$ 74,800.00
On-Target Earnings	$187,000.00	$187,000.00
Notional Salary Percentage	91.80%	91.80%
Notional Salary	$171,666.00	$171,666.00

65.     Simultaneously with the reduction in base pay, HP introduced a new Sales Plan to reward higher performers. The changes had the effect of ending a previous cap on

incentives (which limited incentive payments to 700 per cent of a sales employees’

measure period TIA) whilst simultaneously introducing the review procedures. The

purpose of those changes were explained by HP at that time in a “FAQ” document accompanying the varied employment contract. It refers to the introduction of a “more aggressive pay mix” and contains the following statements:

What advantages does the new compensation plan bring to sales employees?

…

The new sales plan rewards strong sales performance. By moving more money into variable pay, which unlike base pay, can be multiplied by the accelerator, higher payouts are possible for over-performers.

…

What is changing for caps?

HP has eliminated the use of pay plan caps under the new plan. However, there will be a management review process for exceptionally high performance.

66.     Whilst the FAQ document may not have contractual force in and of itself, it does provide some commercial context against which the detailed provisions of the GSC Policy are to be understood. Critically, the commercial purpose of the variation was to provide a greater incentive for higher performance.

67.     Given the reduction of Ms Subasic’s base salary in 2007, and in light of its highly

prescriptive terms, the policy ought not to be construed to contain an implied discretion to adjust an incentive payment on review in any way other than that for which it expressly provides.

68.     The existence of an implied general discretion to impose a cap would not serve the purpose of incentivising high performers who could previously earn up to 700 per cent of their measure period TIA in addition to their base salary but no more. As has been said, there was no express provision made under the amended regime conferring a

discretion on HP to cap payments by a fixed multiple of an employee’s TIA. In the

circumstances just described, there can be no sound basis for implying a term
conferring any such discretion.

Retroactive changes

69.     On the subject of retrospectivity, the primary judge said:

91.      There is no dispute between the parties that Ms Subasic achieving sales of 250% TIA might trigger a review. However, the parties disagree as to the extent of the discretion on review.

92.      Ms Subasic argues that only certain, stipulated action could be taken as a result of a review, namely:

(i)     The adjustment of various components of the Sales Plan;

(ii)     The holding of incentive payments until review is complete; or

(iii)   The recovery of unapproved payments to ensure fair measure of performance.

93.      In oral submissions, Senior Counsel for Ms Subasic also referred to a fourth option, being to do nothing. It was submitted that none of those options create a power to cap payments, or to do so retrospectively. There was similarly no power within the discretion to retrospectively alter previous quota or other parameters. The same reasoning applies to the exercise of any discretion under the MIPR (the wording is the same as that contained in the Sales Letter).

94.      Those submissions should be accepted as being the appropriate construction based on the express wording of the discretion. Again, and applying the reasoning set out above, clear words would have been necessary before the provision would be construed as permitting the Employer to retrospectively cap a payment on review.

95.      The provision is aimed at giving the Employer an opportunity to respond to the market and to ensure that the sales were fairly made. The Employer plainly had the

discretion to revisit the various components of an employee’s Sale’s Plan

prospectively. However, there is nothing in the words of the Sales Letter or the MIPR from which to infer any intention that the Employer retained a discretion permitting it to cap a fairly earned payment after the employee had done the work to earn it.

(Emphasis added)

70.     HP submitted that the emphasised portion of the reasons is circular in that the amount

that had been “fairly earned” could only be ascertained by reference to the terms of the

contract. Those terms, HP submitted, expressly contemplated that changes may be

made to an employee’s Sales Plan upon the conduct of a review which, it submitted,

may operate with retroactive effect.

71.     In support of that submission, HP pointed to the undisputed fact that the review itself would not be triggered until the employee attained sales in the measure period that would result in an incentive payment of 250 per cent of his or her TIA. That, of itself, provided a strong indication that changes might be made to operate retrospectively, so it was submitted.

72.     It was submitted that the existence of a discretion to make retrospective changes was also in accordance with the purpose of the review process, expressed in the MIPR document as follows:

“I. PURPOSE:”

The purpose of the monthly Management Incentive Performance Review (MIPR) is to justify sales employee performance attainment, including (but not limited to) consideration of the following criteria:

• Evaluation of the employee’s quota or objectives as fair and equitable to determine if

errors or erroneous assumptions were made in the quota/goal-setting process, or if the assumptions are now significantly different based on changes in business or market conditions. Analysing performance from this review may include comparing an

individual’s sales performance against country or segment performance for the period

of review.

• Evaluation of unusual sales transactions/credits for appropriate reflection of effort

involved to determine whether the attainment was attributed directly to the employee’s

genuine personal achievement, or whether it was due to other external factors,

beyond the employee’s influence or control, such as ‘windfall’ (aka ‘blue bird’)

situations.

73.     It may be accepted that the above words inform the purpose for which the express contractual powers of review are to be exercised. However, when those powers are considered in the context of the sales program as a whole, they tell strongly against the application of changes to a Sales Plan backdated to apply to a time in the measure period preceding the conclusion of the review or the trigger for its commencement.

74.     The procedure for review includes the production of monthly performance reports so that performance during the period may be tracked. Reviews are to occur not only at the point when the employee achieves sales that would result in the payment of 250 per cent of TIA, but also at the point of reaching 350 per cent and at each 100 per cent increment thereafter. Those provisions contemplate the conduct of multiple reviews as the measure period unfolds. They indicate an intention that unusually high performance will be identified and responded to as soon as it becomes apparent.

75. The clauses extracted at [48] above are also significant. They require that Sales Letters be issued to all employees as early as possible in a measure period. They also

contemplate that a new Sales Letter will be provided “mid-measure period if Sales Plan

changes occur”. Those features indicate that changes made on review will be

communicated to the employee once they are made, that is, during the measure period, so that the employee may be made aware of the adjusted parameters as they

apply to future performance. Critically, an employee’s TIA may be changed

mid-measure period, but only so as to take effect on the first of the next month. Thus, whilst there is clearly provision to make changes to a Sales Plan for the purpose of addressing unforeseen market conditions (including by adjusting quotas), the detailed documents contemplate that the changes are to be made during the measure period, that the changes are to be communicated to the employee during the measure period and that the changes are to operate prospectively for the remainder of the measure period.

76.     That construction is consistent with the purpose of the GSC Policy as a whole, namely, to incentivise higher sales performance. It is a policy that is concerned to provide an impetus for desired performance and so to affect future human behaviour. That purpose is achieved by holding out a reward for the making of a sale that is capable of being measured at the time that a sale is made. The purpose is undermined by making the parameters subject to change with retrospective effect.

77.    Whilst HP had the discretion to make changes to a Sales Program (including to accommodate changing market conditions) that discretion was not unfettered. The discretion was to be exercised for the purpose for which it was conferred and in the manner described in the GSC Policy and associated documents. The express

reservation of a right in HP to “change the plan or the quota during the performance period” did not include the reservation of any right to retrospectively change the plan

after the relevant measure period had come to an end.

Breach of contract

78.     The evidence before the primary judge was that Ms Subasic was one of 11 employees who exceeded sales quotas in the measure period and whose incentive payment was subject to review.

79.     The decision on review was made in May 2010, that is, after the measure period had concluded.

80.    All of the relevant employees had their incentive payment capped to an amount

equivalent to 350 per cent of the employee’s TIA. The capping multiple was the same

in all cases, notwithstanding that there was a wide variance among their sales performance. The blanket approach to capping had the effect that the payment that

would otherwise have been produced by the formula was reduced in Ms Subasic’s

case by 800 per cent of her TIA, whereas in the case of another of the 11 employees
the reduction represented 59 per cent of the relevant TIA.

1. HP’s own documents describe the decision as one involving the imposition of a cap.

   No substantive reasons were provided for the imposition of the cap in that manner. The circumstance that all high performing employees had their incentive payments capped at 350 per cent of TIA plainly supports an inference that the capping occurred for reasons other than irregularities affecting any particular sales by any particular

   employee that might justify HP refusing to credit dubious sales against the employee’s

   quotas.

82.     There was evidence (discussed below) capable of supporting an inference that HP was concerned to address what turned out to be an extremely high volume period of sales.

However, on HP’s pleaded case, the reviewer did not alter any “discretionary metric” in

the exercise of the contractual discretions described above. The sales quotas were not changed. Rather, the reviewer effectively substituted the formula in the Sales Plan with a new formula, by which the incentive payment equalled the TIA multiplied by 3.5, no

matter what the level of performance. For the reasons given above, HP’s discretions in the review process did not include a discretion to adjust Ms Subasic’s incentive

payment in that way.

83.     Moreover, the capping was purportedly imposed so as to operate retrospectively, such that Ms Subasic received no incentive payment at all for all sales made from about March 2010. There was no change to the Sales Plan notified to Ms Subasic so as to inform her that exceedingly high sales performance for the remainder of the measure period would come to nothing. Those circumstances only serve to reinforce our conclusion that the construction of the terms of the contract advanced by HP is not in accordance with the commercial purpose of the incentive program. The construction advanced by HP renders the incentive illusionary.

84.     In our view, for the purpose of identifying whether HP was in breach of the contract, no issue arose as to whether a contractual discretion was exercised in breach of an

implied term that HP’s discretions be exercised in good faith. It was sufficient for the

primary judge to conclude that HP did not have the discretion to impose a retrospective
cap on the incentive payment as a matter of construction of the express terms.

85.    If we are wrong in that conclusion, we would nonetheless conclude that if any discretion to retrospectively cap the incentive payment at 350 per cent existed, the discretion would be subject to an implied term that it be exercised in good faith. It is unnecessary to discuss the source and scope of the obligation, Counsel for HP correctly acknowledged that the discretion would at least be so confined. Proceeding from that alternate starting point, HP has not demonstrated error in the conclusion of the primary judge that the implied obligation was breached. The primary judge was correct to conclude that the cap was imposed as a blanket approach without regard to the varying degrees of performance of the affected employees. Her Honour properly described the capping as arbitrary. That circumstance was capable of supporting the inference of breach. This Court would not disturb the inference, assuming that the issue properly arose.

1. If more evidence were required, it may be found in a letter addressed to HP’s sales

   employees in February 2010. It is to be recalled that at around that time, Ms Subasic had already exceeded her sales quotas to an extent that triggered a review. It is an uncontested fact that the review was not conducted at that time and, accordingly, Ms Subasic was not informed that all sales beyond the next trigger threshold of 350 per

   cent would not be rewarded. To the contrary, the letter of February 2010 urged HP’s

   sales employees to aggressively pursue sales into the second quarter of the financial year. The letter referred to changes in the market that created significant opportunities

   for HP’s profitability. The letter was a rallying call for high sales performances to

   exploit what HP clearly understood to be a bullish commercial environment. The letter plainly demonstrates that HP knew, as at February 2010, that the then-prevailing economic circumstances were generating very high sales. However, rather than adjust sales quotas upon review so as to make it more difficult for its sales employees to achieve their quotas, HP urged the employees on to higher and higher performance. As has been said, the review upon which HP now relies was not conducted until the measure period was complete. That is the factual background against which the question of breach is to be assessed. In our view, even if there existed a discretion to retrospectively cap the incentive payment, the discretion was exercised capriciously on the particular facts just described.

Damages

87.     The onus was upon Ms Subasic to prove the quantum of loss suffered as result of HP’s

breach.

88.     Under the GSC Policy, whether or not there was a review was not a matter for HP’s

discretion. The review was compulsory once Ms Subasic reached the 250 per cent threshold. As has been observed, further reviews were compulsory at each additional 100 per cent attainment. From March 2010, HP withheld payments in excess of 250

per cent of Ms Subasic’s TIA. It was plainly entitled to withhold payments pending the

conclusion of the first triggered review.

89.     The consequence of the breach is that no review was conducted in accordance with the contractual terms and, accordingly, the outcome of the review purportedly conducted by HP was not binding on Ms Subasic. However, it does not automatically follow that Ms Subasic had a contractual entitlement to be paid the claimed amount. For the purposes of assessing damages, the appropriate starting point is that Ms Subasic lost the opportunity to have the review conducted in accordance with the

contractual terms. HP’s submissions are accepted to that extent.

90.     At trial, the onus was on Ms Subasic to prove the value of the lost opportunity. HP submitted that Ms Subasic had not discharged that burden in respect of the award she received. It had not been established, HP submitted, that a review conducted in accordance with contractual terms could and would have resulted in the approval of an incentive payment in the claimed amount. HP submitted that the primary judge had erroneously reversed the onus of proof in relation to the counterfactual and so had

failed to apply the “less burdensome principle”.

1. HP’s complaints in respect of this issue may be shortly disposed of. The review was

   not in fact concluded until May 2010. Critically, the primary judge held it would not have been conducted at an earlier time, and there is no challenge to that finding. As explained above, to the extent that there was a discretion to make changes to

   Ms Subasic’s Sales Plan, it did not include a discretion to do so after the conclusion of

   the measure period with purported retroactive effect. Accordingly, it was not open to HP on the facts to adjust any particular metric in a way that would justify withholding approval of an amount equivalent to the amount claimed in the proceedings. It could not do so with retrospective effect without acting in breach of the conditions of the contract, properly construed or, alternatively (if that construction be wrong) in breach of the implied term to exercise the discretion in good faith.

92.     The evidence adduced at trial was sufficient to prove the claimed quantum of damages to the requisite standard. This Court will not disturb the award.

Disposition of the appeal

93.     Our conclusions concerning the existence of contractual obligations and their content render it unnecessary to resolve some of the grounds of appeal. To the extent that the primary judge erred in the construction of the contract or in other respects, the errors did not materially affect the outcome so as to justify interference with the award of damages that was made. In the circumstances, it is unnecessary to determine those grounds of appeal giving rise to arguments not specifically referred to in these reasons.

94.     The appeal should be dismissed with costs.

The cross-appeal

95.     The primary judge entered judgment for Ms Subasic on the principal claim in the sum of $309,750.39. In addition, Ms Subasic was awarded interest in the amount of $61,568.10. By her cross-appeal, Ms Subasic complains that the primary judge erred in calculating the award of damages from the date that the proceedings were commenced, that is, on 17 June 2016. Ms Subasic submits that interest ought to have been calculated from the date that the debt under the contract arose, that is, by no later than 20 July 2010. That approach would result in an award of interest in the amount of $194,290.84.

96.     The awarding of interest is discretionary. Ms Subasic’s success on the cross-appeal

depends on establishing error of the kind discussed by the High Court in House v R

(1936) 55 CLR 499 at 504 – 505 (House). There the High Court said:

The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.

97.     Counsel for Ms Subasic submitted that the primary judge acted upon an erroneous

principle, arising from her Honour’s treatment of the delay between the date when the

incentive became payable and the commencement of proceedings. The primary judge
said:

114.    The awarding of interest is discretionary. I consider the appropriate date from which interest ought to accrue is the commencement of the proceedings (17 June 2016), which I have taken as the formal demand for payment of the outstanding commission. On one view, that may also be when the cause of action based on the non-payment of a debt crystallised.

115.    The alternative view is that the cause of action arose in 2010, when Ms Subasic was notified that no further payment of commission would be forthcoming. There was no fixed time by which the Employer should have paid the incentive payment. A reasonable time for the payment of the outstanding commission to have been made would have been in 2010. However, Ms Subasic did not make any formal demand for the payment of the incentive payment while she was employed with the Employer. There were then some years before Ms Subasic brought the claim. I accept that there was no issue of waiver pleaded by the Employer and Ms Subasic submitted that she did not want to sour the employment relationship in bringing proceedings while she remained an employee. While that may be understandable, the consequence was that the Employer was unaware that Ms Subasic did not accept the capping of the payment was lawful or remained in dispute years after she resigned.

116.   The substantial delay in bringing proceedings would operate unfairly against the Employer if it were required to pay interest from 2010, when it was not on notice that there was any outstanding issue. Parties are to be encouraged to litigate known disputes in a timely fashion. In this case, I consider the just course is for the payment of interest to accrue from the date the proceedings commenced.

98.     It was submitted that that approach did not accord with established principles in that delay could only have been taken into account as a factor affecting interest if:

(a)	the delay was unjustified; and
(b)	the delay caused prejudice to HP.

99.     It was submitted that the relevant authorities on delay prescribed the manner in which delay was to be treated for the purposes of assessing and awarding pre-judgment interest. Reliance was placed on the decision of the New South Wales Court of Appeal in Kalls Enterprises Pty Ltd (in liq) v Baloglow (No 3) [2007] NSWCA 298 (Kalls):

10       Delay is ordinarily not a reason for refusing or reducing the inclusion of interest. The defendant has had the use of the money, and the plaintiff has been out of its use and should be compensated accordingly. The purpose is to compensate the plaintiff for being kept out of its money (Bennett v Jones (1977) 2 NSWLR 355 at 367, 380; MBP (SA) Pty Ltd v Gogic (1991) 171 CLR 657 at 663; Grincelis v House (2000) 201 CLR 321 at [16]), not to punish it for delay (Bennett v Jones at 367; Geoffrey W Hill &

Associates (Insurance Brokers) Pty Ltd v Squash Centre (Allawah North) Pty

Ltd (1990) 6 ANZ Ins Cas 61-012 at 76,768; Clarke v Foodland Stores Pty Ltd (1993) 2 VR 382 at 397). Interest should be included unless good cause be shown, in order to fulfil the purpose (Ruby v Marsh (1975) 132 CLR 642 at 644; Falkner v Bourke (1990) 19 NSWLR 574 at 576); Clarke v Foodland Stores Pty Ltd at 389).

11       Delay can nonetheless be relevant to the exercise of the discretion. For example, unreasonable delay and a high interest rate may mean that the defendant is unjustly

left as the source of the plaintiff’s investment income. The question is one of injustice

to the defendant. If the interest rates used by the plaintiff exceed commercial interest rates (although commercial interest rates are an imprecise criterion, see below), the

plaintiff’s self-inflicted loss of use of money may be unfairly made a burden on the

defendant.

100.  As can be seen from the above passages, delay may be a factor in the assessment of interest and there may be an assortment of reasons for this to be so. The example given in [11] it is but one such reason.

101.  There are decisions in this Court which specifically emphasise the influence the conduct of a party may have on the extent of interest awarded. For example, in Stelmag Pty Ltd v Long Paddock Pty Ltd & Ors [2005] ACTSC 59 (Stelmag), Higgins CJ said (at [6]):

The principle is that if delay has been caused in the finalisation of a proceeding, not due to any fault of the defendant but due to the fault of the plaintiff, then it would be unjust to burden the defendant with the interest consequences of the delay (see Metro Meat Pty Ltd v Werlick (1993) Aus Torts Reports 81-242).

102.  Whether a judge follows the approach suggested in Kalls or, to some degree, the contrary approach taken in Stelmag, is a matter for the judge, acting, of course, on correct findings of fact and within the bounds of the discretion. The authorities provide guidance. They do not govern the exercise of the discretion.

103.  The primary judge set out what she considered to be the relevant factors. Her Honour

took into account that Ms Subasic did not wish to “sour” her continuing employment with HP. At the same time her Honour noted that “the Employer was unaware that

Ms Subasic did not accept the capping of the payment was lawful or remained in

dispute years after she resigned”. Her Honour concluded that the interest claimed

“would operate unfairly against the Employer if it were required to pay interest from

2010, when it was not on notice that there was any outstanding issue”.

104.  These are legitimate conclusions reached by the primary judge and then weighed in

the balance in the exercise of her Honour’s discretion. The primary judge was as much

influenced by the delay in time as she was by Ms Subasic allowing HP to believe that there were no outstanding issues between the parties. Those factors plainly provided a

proper basis for her Honour’s exercise of her discretion. No error of the kind discussed

in House is identified.

105. It follows that the cross-appeal must also be dismissed.

106. The orders of the Court are:

1.       The appeal is dismissed.

2.       The cross-appeal is dismissed.

3.       The appellant is to pay the respondent’s costs of the appeal.

4.      The cross-appellant is to pay the cross-respondent’s costs of the

cross-appeal.

5.       In the assessment of costs, the costs of the hearing of 9 and 10 November 2020 be apportioned 80 per cent as to the appeal and 20 per cent as to the cross-appeal.

6.       The parties have liberty to apply to vary the orders in paragraphs 3-5, such liberty to be exercised on or before 25 February 2021.

I certify that the preceding one hundred and six [106] numbered paragraphs are a true copy of the Reasons for Judgment of their Honours Chief Justice Murrell, Justice Elkaim and Justice Charlesworth.

Associate:

Date: 19 February 2021